Econ notes
1. Scarcity:
- Unlimited wants but limited resources (e.g., oil, time, labor).
2. Opportunity Cost:
- The **next best alternative** given up (e.g., choosing to study over working =
lost wages).
3. Factors of Production
Land = Natural resources
Labour = Human effort
Capital = Man-made tools
Enterprise = Risk-taking innovation
Production Possibility Curve (PPC)
Maximum combinations of two goods (e.g., guns vs. butter).
- Point A (on curve): Efficient.
- Point B (inside): Inefficient/unemployment.
- Point C (outside): Unattainable (requires growth).
- Shifts:
- Outward: Economic growth (↑ resources/tech).
- Inward: War/natural disasters.
Demand & Supply
Law of Demand = Price ↑ → Qd ↓ (vice versa) Example = iPhone price drop
→ more sold
Law of Supply = Price ↑ → Qs ↑ (vice versa) Example = Coffee price ↑ →
farmers grow more
Equilibrium = Where demand = supply (no shortage/surplus)
Example = Market price of bread settles where buyers/sellers agree |
Factors Affecting Demand:
- Income ↑ → demand for normal goods ↑ (e.g., cars).
- Income ↑ → demand for inferior goods ↓ (e.g., instant noodles).
Price Elasticity of Demand (PED):
Elastic (PED >1): Luxuries (e.g., holidays). Inelastic (PED <1): Necessities
(e.g., insulin).
Market Structures
Monopoly: 1 firm dominates (e.g., Microsoft in 1990s).
Oligopoly: Few firms (e.g., Coca-Cola vs. Pepsi).
Economic Indicators
1. GDP:
- Real GDP: Adjusted for inflation.
GDP per capita: GDP ÷ population.
2. Inflation:
- Demand-pull: Too much spending (e.g., post-pandemic travel boom).
- Cost-push: Rising costs (e.g., oil price shocks).
3. Unemployment:
- Cyclical: Recessions (e.g., 2008 financial crisis).
- Structural: Skills mismatch (e.g., coal miners replaced by robots).
Government Policies
⁃ Fiscal = ↑Govt. spending/↓Taxes
Effect : Boosts AD → growth/jobs
⁃ Monetary = Interest rates
Effect : Cheaper loans → more spending
⁃ Supply-side = Education/tax cuts for firms
Effects : ↑Productivity → long-term growth
International Trade
Globalization
- Benefits: Cheaper goods, job creation.
- Costs: Job losses in uncompetitive industries.
Exchange Rates
- Appreciation: €1 = $1.50 → €1 = $1.60 (EU imports cheaper).
- Depreciation: €1 = $1.50 → €1 = $1.40 (EU exports cheaper).
Money & Banking
Functions of Money
1. Medium of exchange: Avoids barter.
2. Store of value: Holds purchasing power.
3. Unit of account: Measures value (e.g., $5 for coffee).
Central Banks = Control inflation (via interest rates), issue currency.